Should Parents Give Their Child Allowance: Concept, Pros and Cons

Money can’t buy you happiness but you can't also survive without it. This is the reason why it is very important for us to be properly educated when handling money. As we reach adulthood, more responsibilities come across and budgeting becomes as important as surviving. But at what age should we supposed to know the basics of handling money? Do we all agree that children should know the importance of financial management at a very young age and should parents give their child allowance?

The Concept of “Allowance'

The concept of financial management differs from one culture to another. For example, in the article titled “6 Financial Expectations in Asian Families” published on the website Frugal Asian Finance, it was mentioned that Asian children are expected to support their parents after they graduated from college and obtained their job. They were introduced to a culture where the children feel strongly obligated to pay back what their parents have done for them when the time comes. This claim is parallel to what the researchers from the University of Arizona found out when they studied the cultural differences in parenting practices between Asian American families. The finding suggests that families have a great impact and contribution to how Asian children decide in terms of financial aspects. Asian parents support their children and give what they need including allowances even though they barely make it to the day.

Meanwhile, the concept of allowance differs for families leaving in the Western part of the world. Websites such as The Washington Post, CNBC International, and U.S. News all reported that the concept of allowance meant two things for Americans; 1.) it is the payment children receive for doing wonderful tasks and 2.) it is the money they can use to buy whatever they want. With these applied concepts of allowance, parents expect their children to learn the value of money. However, it turned out that allowance is not as common as we expect in America.

In a survey conducted by CreditCards.com, only 40 percent of American children under 18 years old receive their allowance from their parents. In an interview with The Washington Post, Ted Rossman, an industry analyst for CreditCards.com, said he was surprised with the result of the survey. 61 percent of these children receive their allowance through cash while 10 percent of parents give their kids’ allowances through mobile applications. The survey also found out that households with higher gross income are more likely to give financial lessons for their kids. However, only 1 in 4 Americans said that they did not receive any financial lessons from their parents.

Is it worth the try to let our kids handle their own money? Let’s weigh in the pros and cons.

The Pros of Letting Your Kids Handle Money

In an article published in U.S. News and World Report, Susannah Snider quoted Jayne A. Pearl, co-author of the book “Kids, Wealth, and Consequences”, as she explained how money can do wonderful things to our children.

1. Allowance teaches kids the value of money

Snider explained that there are different ways you can use the concept of allowance to teach your kids the value of money. Allowance can be given on a regular basis, which communicates your support to your child. Allowance can also be given in exchange of household chores done or academic accomplishments. This way, you can teach that they have to work hard enough before they can have their allowance. The structure of how you let your kid handle money depends on what you want him to learn. The impact of these learnings can definitely help him in the future.

2. Allowance can teach your kid the importance of financial decisions

When you give your child his allowance, you are giving him the freedom to decide what to do with the money. The decisions he makes will be based on how he perceive the importance of things. He can use it to buy toys, school stuff or snacks. As he buys these things, he would be able to compare their prices. He would be able to form a decision that can guide how he budgets his money. Rosman expressed the same thought when he was interviewed by The Washington Post. Rossman said that when he started giving his daughter money to budget within a week, his daughter learned how to compare prices of stuff she would like to buy.

3. Allowance can make your child commit financial mistakes

Snider cited Pearl saying mistakes are powerful learning tools. Letting your child make financial mistakes in “a low-risk environment” is deemed effective in letting them realize the things they need to learn. Snider claimed that if your kid is spending all his money more than he should be, it is better that he is making these mistakes as a young boy.

The Cons of Giving Your Kid His Own Money

1. Allowance can communicate the wrong lessons

If used improperly, allowance can create more damage than you can expect. If you would give your child money on a regular basis without asking for anything as a condition, he might feel entitled. A study conducted by Lewis Mandell was cited in the website RaiseSmartKid.com. Mandell, who is a professor emeritus of finance and managerial economics, studied 50 years of academic literature from countries such as the U.S.A, Canada, Europe and Australia related to allowances. His findings suggest that teenagers who receive regular allowance without any condition developed a sense of entitlement.

2. Allowance can cost you so much.

Weekly allowances for your kids can eat a huge portion of your budget. Allowances can pose problems in huge families with a tighter budget. It is true that teaching financial literacy to your kids is very important but you would not be successful if you do not have spare money to start with. Make sure that you are giving the right amount of money that would reflect the teachings you want your child to learn. You have your bills too. Snider claimed that you can include your budget for allowance in your overall expenses or allocate whatever amount is left to you.

3. Allowance may be another parenting task that needs to be managed thoroughly

Monitoring how your kids spend their money and giving the lessons they need to learn behind every financial decision they make requires a lot of patience and effort from the parents’ side. If you are a very busy parent, the last thing you would know is that your kid is spending all his money and you are just senselessly giving his allowance.

OTHER SOURCES:

1. https://www.slideshare.net/TRowePrice/t-rowe-prices-11th-annual-parents-kids-money-survey
2. https://www.cnbc.com/2019/06/14/heres-how-much-money-american-kids-are-earning-through-an-allowance.html
3. https://frugalasianfinance.com/financial-expectations-asian-families/
4. https://www.raisesmartkid.com/6-to-10-years-old/5-articles/51-allowance-for-kids-the-pros-cons-and-some-useful-tips